German policymakers, experts and industry stakeholders are increasingly considering auto-enrolment as occupational pension coverage shows little sign of growth.
The number of workers with an occupational pension has remained largely unchanged since 2019 at around 20.9 million, according to the latest figures from the Federal Ministry of Labour and Social Affairs (BMAS).
Recent research by the German Institute for Economic Research (DIW Berlin) among occupational pension sponsors highlighted significant disparities in workplace pension coverage across sectors and company sizes.
Coverage stands at around 80% in the financial and insurance sectors but falls to just 15% in the hospitality industry, according to the survey.
Similar disparities exist by employer size. More than 85% of employees at companies with 1,000 or more staff participate in an occupational pension scheme, compared with only 25% of employees at micro firms with up to 10 workers.
Peter Haan, head of the public economics department at DIW Berlin, said mandatory occupational pensions are “almost the only solution” available to reach all employees.
The unequal distribution of workplace pensions is a “very serious problem”, particularly for lower-paid workers employed by small firms and in low-wage sectors, he told IPE.
Susanna Adelhardt, chair of the German Association of Actuaries (DAV), said during the organisation’s annual press briefing last month that auto-enrolment or mandatory participation in occupational pension schemes would be the “preferred approach” to safeguard living standards in retirement if voluntary solutions fail to deliver broader coverage.
The introduction of mandatory occupational pensions has become a key topic of discussion among political parties and industry stakeholders after the German Trade Union Confederation (DGB) expressed support for the measure.
From the perspective of aba, Germany’s occupational pensions association, however, any move towards auto-enrolment requires careful consideration.
Its chair, Beate Petry, told IPE that lawmakers must first clarify what form mandatory participation should take.
“[Is it] a statutory mandate, as in Switzerland? Auto-enrolment with an opt-out option, as in the UK or Ireland, or a quasi-mandatory arrangement based on collective agreements, as in the Netherlands?”, she asked.
The government-appointed pension commission (Alterssicherungskommission), comprising 13 experts and members of parliament, is also examining the issue.
In April, aba presented the commission with its roadmap for increasing occupational pension coverage. The proposals include the possibility of a mandatory requirement, if necessary, but without employer liability.
“Should the commission conclude that ‘greater enforceability’ is required for funded pension provision, then we consider occupational pension schemes to be the appropriate pillar for this purpose,” Petry said.
Practical implementation
WTW has advocated a practical opt-out model designed to lower barriers to participation in occupational pension schemes.
“In our view, company pension schemes can only display their full potential if implementation is simple, transparent, and legally secure. Without these prerequisites, a mandatory requirement risks overwhelming small and medium-sized firms (SMEs), rather than strengthening them,” said Hanne Borst, head of retirement at WTW Germany.
A mandatory system would have its greatest impact on SMEs, where workplace pension coverage remains weakest, she added.
For DAX-listed companies, however, mandatory participation presents both advantages and disadvantages. While it could reduce a competitive benefit enjoyed by firms offering strong pension arrangements, it could also create an industry-wide standard that improves portability when employees change jobs and supports labour mobility, according to Johannes Heiniz, senior director, retirement, at WTW.
Political pressure for reform is also increasing at both national and European levels.
The second-pillar reform package (Betriebsrentenstärkungsgesetz II), parts of which entered into force this year, provides a framework for assessing mandatory occupational pensions should coverage continue to expand only slowly.
At the same time, the European Commission is promoting auto-enrolment across member states, a development that could add further momentum to the debate, Heiniz said.
“Companies would like to see more boldness from policymakers manifested in clear, practical regulations and reduced complexity,” he added.
